Your Risk Profile

In the investment world there is a direct relationship between expected returns and risk—the higher the expected payback from your investment, the higher the risk. Before you can decide on a personal investment strategy, you need to consider how much or how little risk you are prepared to take with your money.

Your risk tolerance can be affected by:

Time horizons

The amount of time you have to meet your financial goals and to make up for any losses you might experience. People with long time horizons may be more willing to endure periodic fluctuations in the value of their investments.

Cash requirements

The extent to which you depend on your investments to meet day-to-day expenses. Investors who rely on their investments to meet daily living expenses will be much less comfortable with the risk of losses.

Emotional Factors

Your emotional response to risk and to changes in the value of your investments. Some people are quite comfortable with the ups and downs of the market, while others lose sleep when their investments fluctuate in value.

There is no right answer to the question of how much risk you should take. It’s a personal issue. Never feel obligated or pressured to take on more investment risk than you feel comfortable.

Take our risk test to help determine how much risk you feel comfortable with.

Remember, there is no such thing as a high-return, risk-free investment. The promise of guaranteed return with no risk is a warning sign that suggests the investment might be a scam. You cannot expect to be rewarded with high returns on your investments if you are not prepared to accept the risks that go with them.

Learn about other indications that an investment might be too good to be true in Fraud warning signs.